Master Class 15: How to Read the Quarterly Results?
Created on 09 Sep 2020
Wraps up in 5 Min
Read by 2k people
Updated on 21 Sep 2022
The earnings season is here. The news is filled with the quarterly results issued by various companies and their follow-up interviews. So what does it mean to you as an investor? Does it really matter? The answer would be "yes." It is extremely crucial to check the quarterly results of the company you are investing in.
Whenever you perform a task, you might want to know your progress at regular intervals. As an investor, you will want to do the same with the companies you put your money into. Hence, the quarterly results serve as a useful yardstick, with which investors measure the company's performance. It also tells you how effective and capable the company is in establishing its long term goals.
It is mandatory for every listed company to issue their quarterly results within 45 days after the end of every Quarter. Therefore, you will notice the companies coming up with quarterly results in June, September, December, and March.
Having understood its relevance, let's figure out the technique of analyzing quarterly results.
Reap the benefits of comparison:
Tracing growth becomes extremely difficult without the assistance of comparison. As far as the quarterly results are concerned, you can compare them in two different ways. Most experts advise investors to compare the accounts both ways as it offers better insights. However, you can restrict your comparison depending on the nature of the company you are choosing. So the ways of comparison include,
- Quarter on Quarter (QoQ) – Here, you will be comparing the current Quarter with that of the previous Quarter. For example, sales of September 2019 will be compared with the sales of June 2019 and so on. Quarter on Quarter allows investors to determine the capability of the company in achieving long term goals. Certain industries undergo rapid changes within a short duration owing to reasons like heavy competition, shortage of raw materials, etc. In such a case, it is always beneficial if the investor could place more emphasis on Quarter on the Quarter method of comparison.
- Year on Year (YoY) –When you are keen about finding the consistency of the company's performance or the direction of its operation, you can rely on YoY. This compares the data of June 2019 with that of the date of June 2018. Sectors that are subject to changes due to cyclical or seasonal factors can be compared using this method. Example: FMCG.
Source: Wonderla Quarterly Result
Significance of the top and the bottom line of Quarterly Results
Whether it is the quarterly results or annual reports, the bottom line and top line of a company play a vital role in any analysis. The top line is also stated as the sales or revenue of the company. If you notice a consistent rise in this number, then it is a green flag stating that the business is performing well. Further, it is also necessary that the investor examines the quality of this number. In other words, the increase in sales might be the result of an increase in price, which denotes that the brand enjoys a better pricing power in the market. Or due to a rise in volumes, which translates that the product is growing at the ground level. It might also be due to temporary reasons. For instance, a lot of FMCG companies experienced a sudden rise in sales due to changes in the spending pattern of the people owing to the pandemic. But this will be a temporary increase. So, one should not be carried away by it.
The bottom line, on the other hand, is the net profit of the company. This number is highly sensitive. That is, a sudden increase or decrease might affect the share prices of the company. Sometimes, irrespective of the changes, the market may show little or no reaction. So one should forget that the market sentiment also plays a key role here. It is also vital that you find out whether or not the profits are from unexpected incomes or write-offs.
Have you read our previous Master Class: How to Analyze Company's Profit and Loss Statement
Stock holding pattern
The stock holding pattern and details attached to it are also announced every Quarter. This helps in analyzing the performance of the company. For instance, if the promoter increases his stock holding in the company, then it is a signal of positive growth. And vice versa might be an indication of danger. Similarly, too much Promoter pledging is also a bad sign. You can simply check this using Ticker.
Source: Wonderla Shareholding Pattern
What else do the quarterly results say?
Apart from what is specified above, there are other pointers which the investor should pay attention to. They are as follows,
- Just like the top line and the bottom line, things like expenses, revenue, and earnings per share are fundamental. So pay equal attention to these numbers as well.
- Operating profit tells you how much the main business of the company is making. Moreover, it helps you in figuring out the growth. For instance, a textile company has got some investments into stocks and sustained profits in that. But the operating profit ultimately considers the profits which the company made as a result of its textile sale.
- If there is a sudden economic obstacle or slow down, then the company may record a low sale. Quarterly results aid you in finding out if the company is moving out of the economic crisis or not. It helps in tracking the development and efficiency of the management in sorting the problems.
- Delay in issuing the quarterly results is a negative sign. Most companies skip the stipulated deadlines due to corporate governance issues. So the investors who are holding such stocks should be more cautious. Have a keen eye while looking at their financials and ensure you understand not just the number but the story behind it.
- Companies also use quarterly results to declare their future plans, announce changes in the management-related matters, etc. As an investor, you have to watch for it. Guidelines from the company with respect to the margins are of great assistance in analyzing the company's effectiveness in managing the costs.
- If you are looking at the accounts of a banking stock, then it is essential that you look for the non-performing assets as well. An increase in them is pessimistic. It is just an underlying burden for any bank and shows the inefficiency of the bank at large.
Your stock trend analysis will be more polished if it is assisted with all the points mentioned above. Make sure you pay close attention to all the details. Because a tiny detail can make a great difference. Having said that, all you have to do now is quickly jump to Ticker and type the stock of your choice and start your comparison. It's simple and much easier than you can imagine. Still having some doubts, then click YouTube to find out more.
Checkout the next blog series: What is Free Cash Flow? And how to calculate it?
To read all Master Class series: Click Here
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